The National Federation of Community Development Credit Unions is exploring whether a federal bond program could be used as a funding source for long-term assets and to bolster secondary capital for Community Development Financial Institutions.
Federation President Cliff Rosenthal said the new program could mean billions of dollars in government-guaranteed bonds issued by CDFIs, which are a major source of financing for affordable and sustainable housing initiatives across the country. The CDFI bond program was established under the Small Business Jobs Act of 2010 and authorizes federal guarantees for bonds and notes for community and economic development purposes, like housing.
Under the new legislation, the U.S. Treasury Department may issue up to $1 billion a year in bond authority through Sept. 30, 2014. Minimum increments of bonds are $100 million. The bonds are taxable, and guarantees may be as long as 30 years. The program will be restricted to certified CDFIs.
Due to the minimum bond size of $100 million, Rosenthal sees a major role for the Federation in aggregating capital demand among its member credit unions. "We think that if the program is to work it will have to have a role for aggregators," Rosenthal said. "We are trying to create space for that in the program design."
Currently there are about 200 CDFI credit unions, an all-time high according to Rosenthal. In 2010, the Federation helped 48 credit unions obtain $69.9 million in secondary capital under the CDCI program.
Rosenthal suggested the bond program could have an even bigger impact on CDFI-designated credit unions than the CDCI program, due to the fact there are no "onerous restrictions that discouraged many credit unions from participating in the CDCI program."
